Good day, ladies and gentlemen, and welcome to Honeywell's Fourth Quarter Earnings Release and 2022 Outlook Call. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Sean Meakim, Vice President of Investor Relations. Sean, please go ahead.

Thank you, Ari. Good morning, and welcome to Honeywell's Fourth Quarter 2021 Earnings and 2022 Outlook Conference Call. On the call with me today are Chairman and CEO, Darius Adamczyk; and Senior Vice President and Chief Financial Officer, Greg Lewis. Also joining us are Senior Vice President and General Counsel, Anne Madden; and Senior Vice President and Chief Supply Chain Officer, Torsten Pilz. This call and webcast, including any non-GAAP reconciliations, are available on our website at www.honeywell.com/investor. Honeywell also uses our website as a means of disclosing information, which may be of interest or material to our investors and for complying with disclosures under obligations under Regulation FD. Accordingly, investors should monitor our Investor Relations website in addition to following our press releases, SEC filings, public conference calls, webcasts and social media. Note that elements of this presentation contain forward-looking statements that are based on our best view of the world and of our businesses as we see them today. Those elements can change based on many factors, including changing economic and business conditions, and we ask you that you interpret them in that light. We identify the principal risks and uncertainties that may affect our performance in our annual report on Form 10-K and other SEC filings. This morning, we'll review our financial results for the fourth quarter and full year '21, discuss our 2022 outlook and share our guidance for the first quarter of 2022 and full year '22. As always, we'll leave time for your questions at the end. With that, I'll turn the call over to Chairman and CEO, Darius Adamczyk.

Thank you, Sean, and good morning, everyone. Let's begin on Slide 2. We delivered a strong fourth quarter despite a challenging backdrop that included an accelerated inflationary environment, ongoing supply chain constraints and persistent COVID-19 variants. I'm pleased with our disciplined execution as we navigate these challenges, capitalizing on the ongoing recovery in our end markets. We delivered on our fourth quarter commitments for sales, segment margin and adjusted earnings per share despite these headwinds, with fourth quarter adjusted earnings per share of $2.09, up 1% year-over-year and just above the midpoint of our guidance. Organic sales were down 2% year-over-year, and that was heavily impacted by the COVID mask declines and fewer days in the fiscal quarter, which Greg will touch on later. Our focus on differentiated solutions drove double-digit fourth quarter organic sales growth in the commercial aerospace aftermarket, productivity solutions and services, advanced sensing technologies and recurring connected software businesses. Segment margin expanded 30 basis points year-over-year, led by strong pricing actions that we took again this quarter to address the headwinds we faced from inflationary pressures and supply chain disruptions. These swift pricing actions allowed us to stay ahead of the inflation curve, driving a 5% increase year-over-year on top line and yielding approximately 50 basis points of margin expansion net of inflation. We generated $2.6 billion of free cash flow in the quarter, 4% above 4Q 2020, achieving 178% adjusted conversion. In terms of capital deployment, we put $2.1 billion of cash to work in the fourth quarter. Looking at the entire year, orders across Honeywell grew double digits organically and backlog increased 7% to $27.7 billion driven by strength in many of our segments as we entered 2022. We finished 2021 with 4% organic sales growth, 60 basis points of margin expansion and $8.06 of adjusted earnings per share, up 14% year-over-year. We generated $5.7 billion of free cash flow in the year, resulting in adjusted conversion of 102% or 17% of revenue, a very strong result. Our earnings per share and our free cash flow performance was above our initial guidance range shared at the start of 2021, demonstrating our ability to deliver on our commitments despite unforeseen challenges and shifting economic conditions. In the appendix of this presentation is a slide highlighting our guidance progression throughout 2021 as well as our performance against these guides. On our capital deployment strategy, we have maintained a balanced approach over the past several years, consistently deploying more than 100% of operating cash flow to fund share repurchases, dividends, M&A and capital expenditures. This past year was no exception. In fact, 2021 marks the highest level of capital deployment in the last 6 years. Despite the challenges we faced in 2021, we deployed $8.5 billion of capital, demonstrating our commitment to investing in high-return opportunities in any environment. We invested $1.6 billion in M&A, adding strategic assets to our portfolio that enhance our technology offerings, innovation and ultimately, our long-term growth potential. Specifically, we completed 4 transactions, including Sparta Systems, Fiplex, Performix and the $270 million we contributed to Quantinuum combination, which I'll speak about more in a moment. We spent $900 million on capital expenditures to continue to build technologies to make our world safer, more efficient and more sustainable. We deployed $3.4 billion to repurchase shares, reducing our weighted average share count by 1.5%. And finally, we maintained a strong dividend policy, paying out $2.6 billion and raising our dividend again for the 12th time in 11 years. Looking forward, I continue to be encouraged by the strength we are seeing in many areas of our portfolio as we continue to execute on our rigorous and proven value creation framework, underpinned by our accelerator operating system that drives outstanding shareholder value. Next, let's turn to Slide 3 to discuss some exciting wins in our Sustainable Technology Solutions business. We continue to make substantial gains for our sustainability business. In the fourth quarter, we announced the commercialization of our UpCycle Process Technology, a revolutionary new process that expands the types of plastics that can be recycled. This process can produce feedstocks used to make recycled plastics with a much lower carbon footprint and has the potential to increase the amount of global plastic waste that can be recycled to 90%. In addition, just last week, we announced our intent to form a joint venture with Avangard Innovative, America's largest plastics recycler, to build an advanced recycling plant in Texas. The facility will use our UpCycle Process Technology and is expected to have the capacity to transform 30,000 metric tons of mixed waste plastics into Honeywell recycled polymer feedstocks per year. We also recently announced that we've entered into an agreement with FREYR Battery, to provide smart energy storage solutions to address the needs of a wide range of commercial and industrial customers alike. FREYR will leverage Honeywell's leading technology offerings, including integrated automation, field instrumentation and security integration solutions on manufacturing processes. In turn, Honeywell will purchase 38 gigawatt hours of battery cells produced by FREYR from multiple energy storage system applications. Battery energy storage systems technology development is vital to the continued decarbonization of the global power system as it will enable the transition to renewable energy sources. In the fourth quarter, we announced an agreement with the University of Texas at Austin that will enable the lower cost capture of carbon dioxide emissions from power plants and heavy industry. We have committed to achieve carbon neutrality in our own operations and facilities by 2035. We are committed to helping our customers reduce their carbon footprint as well. We'll leverage UT Austin's proprietary advanced solvent technology to help power, steel, cement and other industrial plants lower their emissions and meet their sustainability goals. Finally, we saw tremendous traction in our green fuels business, which uses UOP's Ecofining technology to produce high-quality drop-in fuels from sustainable sources. Over the last few months, we recorded 6 important wins, including 2 large multinational companies. In addition, Diamond Green Diesel is using Ecofining technology to produce renewable diesel. They plan on having the capacity to produce over 1 billion gallons per year by the second half of 2022. These are just 4 select examples from our vast portfolio of sustainable offerings. We will continue to innovate, demonstrating that Honeywell will be a key player in the oncoming energy transition. Now let's turn to the next slide to take a look at some of the big commercial developments and how we are aggressively investing in growth. If you've been following our press releases over the past quarters, including the examples highlighted on the previous slide, you are well aware of the successes we are having with new innovations and partnerships. We have many growth opportunities across the portfolio with new products, businesses or entirely new markets. These areas present high return opportunities to deploy our CapEx and OpEx spend to create value for the future. To highlight a few examples, in 2022, we are increasing CapEx investment to expand our Solstice production capacity, commercialize our advanced plastics recycling technology and build additional generations of both commercial and development quantum computers. To fund key investment priorities in '22, we plan to spend $1.1 billion to $1.2 billion in CapEx, up $200 million versus 2021, a 25% increase compared to the prior 3 years. Our 2022 research and development priorities will be continued innovation in sustainable technologies, developing our next generation flight deck and investment in new engine development, to name a few. R&D for '22 will be up approximately $200 million or 15% year-over-year and up 10% versus the prior 3 years. Our internal spending on capital projects in R&D has consistently been our highest return deployment of our capital. We'll continue to make these investments to drive our future growth. Also, Honeywell Digital, one of the 3 main transformation initiatives, has fundamentally changed the way we work and resulted in $1 billion of cumulative sales, productivity, and working capital benefits since 2018. We'll continue to invest in our digitization efforts to drive efficiencies and produce valuable data-driven insights. While this may be a modest drag on our cash generation in '22, these investments are crucial to accelerating our growth and driving transformation across our portfolio. Let's turn to Slide 5 to take a closer look at Quantinuum, which is one of the major breakthrough initiatives for Honeywell. In the fourth quarter, we completed our previously announced business combination of Honeywell Quantum Solutions and Cambridge Quantum to form a new company, Quantinuum. As mentioned in our investor communications throughout 2021, this combination marries leading quantum computing hardware with leading quantum computing software to form the largest and most advanced integrated stand-alone quantum computing company in the world. Quantinuum technology will help solve some of the world's most pressing challenges, including breakthroughs in drug discovery and delivery, material science and industrial optimization, to just name a few. Quantinuum's cybersecurity offering launched in December. Quantum Origin is the world's first commercial product built upon quantum computers that delivers outcomes that classical computers could not achieve. This revolutionary new product will be crucial to companies and governments who need to ensure the protection of sensitive information against adversaries and criminals. With the introduction of Quantum Origin, which is already serving Fortune 500 customers today, we expect Quantinuum to reach approximately $2 billion in sales by 2026, one year earlier than the estimate we provided in our leadership webcast back in November. Upon the completion of this combination, Honeywell invested $270 million into Quantinuum, and Honeywell currently owns a majority stake. We expect a slight margin headwind of 30 basis points to Honeywell in 2022 due to increased R&D spend associated with Quantinuum, as shown on the previous slide. Overall, we expect Quantinuum to be a $150 million headwind to EBITDA. However, this R&D investment will yield great returns as we accelerate the commercialization of this revolutionary technology. The appendix of this presentation contains a slide explaining the 2022 financial impact on Honeywell in more detail. We believe this is a unique opportunity for investors to gain exposure to an early-stage growth technology company at an industrial multiple. Quantinuum is the best positioned company to lead quantum computing and has all the building blocks to be the frontrunner in what is projected to be a $1 trillion industry. Now I will turn the call over to Greg to discuss our fourth quarter results and 2022 outlook in more detail.

Thank you, Darius, and good morning, everyone. Let's turn to Slide 6. As Darius highlighted, we delivered on our financial commitments despite a very difficult operating environment. Fourth quarter sales declined 2% organically as supply chain constraints continued in the quarter, predominantly in Aerospace, HBT and SPS. The quarter also had difficult year-over-year comps with lower COVID-related mask demand impacting growth by 2 percentage points and 6 fewer days than fiscal 4Q 2020, which is worth approximately 3 percentage points. Turning to the segments. Aerospace fourth quarter sales were down 3% organically compared to the fourth quarter of 2020 as we continue to manage through the supply chain constraints we're facing. Continued flight hour improvement led to over 20% year-over-year growth in air transport aftermarket sales and over 10% growth in business and general aviation aftermarket sales. Business & General Aviation original equipment sales also grew double digits in the quarter. Defense & Space was down 18% year-over-year in the fourth quarter with softness in U.S. defense, partially offset by international defense, which grew sequentially and year-over-year. Segment margins expanded 140 basis points to 29% as a result of value capture, improved business mix with higher aftermarket sales and productivity, partially offset by higher cost of materials. Building Technologies sales declined 1% organically year-over-year due to continuing supply chain constraints across the business, partially offset by pricing, though orders were up 4% in the quarter. Backlog in Building Solutions was up double digits year-over-year with growth in both projects and services, positioning HBT for strong performance in 2022. Our Healthy Buildings portfolio finished the year strong with over $200 million of orders in the quarter, bringing the total orders for 2021 to well over $400 million. Segment margins in HBT continue to be strong at 21.1% in the quarter, though it was down 30 basis points year-over-year, driven by lower volume leverage and cost inflation, mostly offset by favorable pricing. In Performance Materials and Technologies, sales were up 2% organically, led by 7% growth in UOP and 5% growth in Advanced Materials. UOP sales growth was driven by higher petrochemical catalyst and gas processing shipments while Advanced Materials benefited from continued double-digit sales growth in Life Sciences and Protective and Industrial Solutions. Process Solutions sales were down 3% organically with slower recovery in projects and supply availability constraining smart energy production. However, orders growth across the HPS portfolio, including double-digit orders growth in the projects businesses, provides confidence in the longer-term outlook for the business. Orders in UOP were up 25% year-over-year, including triple digits in Sustainable Technology Solutions, another signal for strong 2022 growth. PMT segment margins expanded 430 basis points to 23% in the fourth quarter, driven by favorable pricing and productivity, net of inflation. Turning to Safety and Productivity Solutions, where sales were down 6% organically, mainly due to a 12-point impact from COVID-related masks. Intelligrated was flat year-over-year and down sequentially, as expected, as the level of delivery and installation came down from its 2Q peak. Productivity Solutions and Services continues to be a star in the portfolio, along with the Sensing business, both of which had double-digit sales growth in the quarter. SPS backlog remains above $4 billion as declines in the mask business were mostly offset by triple-digit growth in Advanced Sensing and Technologies and over 90% growth in Productivity Solutions and Services, giving us confidence in the future growth. SPS segment margins contracted 450 basis points to 10.8%, driven by lower volume leverage and inefficiencies caused by ongoing supply chain challenges in Intelligrated, which we highlighted in our previous earnings call, and I'll touch on again in a moment. So for overall Honeywell, we delivered 30 basis points of segment margin improvement with margin expansion in PMT and Aero, ending the quarter with segment margins of 21.4%, a 20 basis point sequential improvement versus the third quarter. We drove targeted pricing again in the quarter across the portfolio to combat the accelerated impacts of inflation. On EPS, we delivered fourth quarter GAAP earnings per share of $2.05 and adjusted earnings per share of $2.09, which was up $0.02 year-over-year. A bridge for our adjusted earnings per share from 4Q '20 to 4Q '21 can be found in the appendix of this presentation. Segment profit was a $0.03 headwind driven primarily by lower volume due to fewer days, mask volumes and supply chain constraints, offset by price and cost actions. Higher effective tax rate, 19.7% this year versus 18.9% last year, drove a $0.02 headwind. Share count reduction drove a $0.04 year-over-year tailwind to earnings per share, and we saw a $0.03 benefit from below-the-line items due to higher pension income that was partially offset by increased repositioning and other. Repositioning and other specifically were approximately $160 million, just below the midpoint of our 4Q guidance of $140 million to $215 million, and included a $105 million charge in the fourth quarter due to incremental long-term contract labor cost overages in Intelligrated caused by severe supply chain disruptions from COVID-19. The accelerating challenges of supply chain disruptions and labor shortages in the second half of '21, coupled with the hyper growth of the business and the link between material supply and installation efficiency in the Intelligrated model, drove specific identifiable nonrecurring costs which were recorded in repositioning and other. This charge is forward-looking and accounts for projects that are yet to be completed. In 2022, we expect roughly $30 million to $50 million of carryover costs, the impact of which is incorporated into our 2022 repositioning and other guidance. Other inefficiencies were reflected in the Intelligrated and SPS P&L, as I mentioned earlier in the discussion of the SPS margins. Moving on to cash. We generated $2.6 billion of free cash flow in the quarter, up 4% year-over-year. This increase was driven by lower working capital, including strong collections and world-class payables, offset by higher inventory as we continue to work through the constrained supply chain environment and extended lead times. We also had a $211 million accelerated cash receipt in the quarter from Garrett per our contractual claims under the plan of reorganization signed last year. As a reminder, we include cash receipts from Garrett within free cash flow in order to be comparable to prior periods, where the cash proceeds from the indemnification and reimbursement agreement were recognized. Finally, as Darius mentioned earlier, we deployed $2.1 billion towards high-return opportunities for our shareholders. We paid $680 million in dividends, repurchased $880 million in shares, over delivering on our commitment of a minimum 1% share count in '21, and we deployed approximately $280 million in CapEx and invested $270 million in Quantinuum. So overall, we managed successfully through another challenging quarter and closed out 2021 on a strong note. Now let's turn to Slide 7 to talk about our markets and segment outlook for 2022. We continue to see promising signs as the recovery unfolds as well as encouraging wins in our key markets. The backdrop for 2022 does have a number of uncertainties in it, including the ongoing global pandemic, continued supply chain constraints, accelerated inflation and labor market challenges. And at each turn, our rigorous operating principles have enabled us to demonstrate our agility and resiliency in battling these situations. Across our end markets, the macro setup continues to be strong. Increased COVID-19 vaccination rates and higher immunity should lessen infection rates, pointing to signs of the pandemic subsiding and leading to continued improvement in global flight hours and returns to buildings. Investments will continue to flow towards transitioning global energy production to a low-carbon future, and Honeywell will continue to lead that evolution as we invest in our strategically differentiated and sustainable technologies. We expect supply chain impacts to remain as challenging in the first half of the year as they were in the third and fourth quarters, and they'll start to abate as the aero supply base ramps up and capacity for electronic components comes online in the third quarter. Inflation will continue to be a significant headwind; however, our agile pricing actions will dampen the impacts to margin throughout the year. Corporate tax legislation continues to be a watch area for both earnings and cash, which I'll talk about a little bit later. As for the segments, in '22, we expect Aerospace to continue to benefit from the recovery in flight hours, leading to robust growth in commercial aftermarket sales. Commercial build rates will continue to improve, especially in air transport, providing growth in original equipment sales, but creating some mix headwinds on margins. Defense & Space sales will experience progressively improved performance as supply chain challenges abate, returning the business to growth in the second half and ending the year roughly flat. In total, we expect Aerospace sales to be up high single digits for the year. Despite some mix pressure and the ramp-up in R&D expenses for the long-term programs, margins will expand as Honeywell Quantum Solutions business investment moves out of Aero and into corporate costs. HBT will see continued strong demand in '22 as the world continues to reopen and sustainable solutions see increased use. We expect end markets to gradually recover throughout the year, including government, education, and office buildings. Increased government funding for infrastructure, both in the U.S. and Europe provides further opportunities across the portfolio. Pressure from supply chain constraints, particularly semiconductors, will impact the business, especially in the first half, but we'll continue to execute on our mitigation actions and expect the business to grow high single digits for the year. We expect our margins to expand, driven by higher sales on our streamlined cost base. Performance Materials and Technologies has one of the most favorable macro setups in our portfolio, and we will see growth accelerate throughout the year. We expect Process Solutions sales to sequentially improve. Process Solutions product orders will continue to grow at a healthy rate following the double-digit orders growth we saw in the fourth quarter of '21 as traditional energy projects begin to gradually recover, and we see strength across new verticals like Life Sciences and sustainable energy storage that are driving increased demand. The increase in UOP engineering and licensing orders over the past few months gives us confidence in the follow-on Process Solutions projects growth over the medium term. UOP catalyst shipments will remain strong as demand shifts from petrochemicals to refining, where we expect a reload cycle to emerge in the energy space. Advanced Materials' demand remains robust, and we expect sales to increase throughout the year, especially as we complete production capacity expansion projects such as our planned increase in our Solstice line of ultra-low global warming potential solutions. In addition to Solstice, our other sustainable offerings in renewable fuels, carbon capture, energy storage, and plastics recycling will benefit from the increased customer focus on environmental responsibility and efficiency. In total, we expect PMT sales to be up mid to high single digits for the year. We expect PMT margins to expand as well as a result of continued pricing and productivity actions as well as increased volume leverage. In Safety and Productivity Solutions, demand for productivity solutions and services, advanced sensing technologies, and gas detection all remain strong, and their increased backlogs create strong runway for growth in '22. Lower COVID-related mask demand will affect the first quarter most heavily, driving a 9% drag on SPS in Q1, which will then abate throughout the year. In Intelligrated, after ending 2021 with approximately 50% year-over-year hyper growth, we expect sales to be flat year-over-year in '22 as we adjust our portfolio towards a better balance of growth and near-term profitability. We're targeting substantial margin expansion in Intelligrated in 2022 and expect sequential improvement throughout the year, with second-half revenue being higher than the first, the opposite dynamic compared to what we saw in 2021. So overall, we expect SPS sales to be flat year-over-year, with sales growth higher in the second half compared to the first half and margins expanding materially as business mix and supply chain challenges subside. So overall for Honeywell, we see improvement across most of our end markets throughout '22, and we have confidence in our continued operational execution. We'll manage through another challenging operational environment with accelerating growth as the year progresses. Now let's move to Slide 8 to discuss how these dynamics come together for our 2022 financial guidance. In total, for '22, we expect sales of $35.4 billion to $36.4 billion, which represents overall organic sales growth in the range of 4% to 7%. We'll continue to drive pricing actions to combat this inflationary environment, and we expect approximately 4% of our sales growth to come through price. Excluding the impact of the lower COVID mask demand, which will approximately be a 1-point headwind, we expect organic growth of 5% to 8%. The first half will be slower, and as additional supplier capacity comes online, we'll see significant sequential improvement and stronger growth in the back half of the year. Segment margins are expected to expand 10 to 50 basis points, despite a robust investment year, supported by higher sales volumes, price/cost management, and our continued rigor on fixed costs. Excluding the 30 basis point headwind from Quantinuum OpEx that Darius mentioned earlier, we expect margins to expand 40 to 80 basis points. We are excited about the trajectory of Quantinuum and the value creation that this investment will bring. We expect margin expansion across all of our businesses in '22, with SPS leading the pack as we prioritize profitability versus growth. For the year, we expect earnings per share of $8.40 to $8.70, up 4% to 8% adjusted. We see free cash flow in the range of $4.7 billion to $5.1 billion in '22 or $4.9 billion to $5.3 billion, excluding Quantinuum, which I'll walk through in a couple of minutes. For now let's turn to Slide 9 and talk through our 2022 EPS bridge. On EPS, segment profit is expected to be a key driver of our earnings growth, contributing $0.58 per share at the midpoint of our guidance or about 7% growth. Next, below the line, which is the difference between segment profit and income before tax, is expected to be in the range of negative $100 million to positive $50 million, which reserves capacity for $300 million to $425 million of repositioning and other. This includes between $30 million and $50 million related to the carryover cost from supply chain disruptions in Intelligrated. On the pension front, we expect approximately $1.05 billion of pension and OPEB income in '22, down approximately $100 million from 2021, as we have adjusted our plans for higher discount rates due to interest rate movements and the adjustment of our expected returns. Our diligent management and strong returns have been an important value driver for the company, putting us in a position where our pension-funded status continues to be robust, ending the year at approximately 120%. With these inputs, below the line and other items are expected to be down $0.15 per share year-over-year at the midpoint, mainly driven by the lower pension income. Quantinuum will result in a headwind of approximately $0.03 per share as the net P&L investment is partially offset by noncontrolling interest. For taxes, we expect an effective rate of 22%, and our base case is that our minimum 1% share count reduction program will result in a benefit of $0.09 per share, reducing our weighted average shares from 700 million to at least 693 million. So in total, we expect '22 earnings per share to be in the range of $8.40 to $8.70, up 48% year-over-year adjusted. However, excluding the impact from Quantinuum and below the line and other items, we would see year-over-year earnings per share growth of 8% at the midpoint. Now let's turn to Slide 10 and discuss the drivers of our free cash flow guidance for '22. As we outlined on this bridge, 2022 cash flow will be the tale of 3 dynamics: healthy net income growth, 2 meaningful nonoperational adjustments, and an increase in investment in exciting growth vectors. The 2 main detractors are lower Garrett cash receipts due to an elevated payment of $375 million in 2021 and higher cash taxes between $400 million and $600 million, as current R&D capitalization, tax legislation and other law changes may result in meaningful year-over-year headwinds. While there is still a possibility that legislation will be enacted that defers the requirement to capitalize R&D, we are including higher cash taxes in our current outlook as we'll be required to make these payments unless existing law is amended by legislation before the end of March. As you would expect from Honeywell, we'll continue investing in our long-term growth with between $200 million and $300 million incremental capital expenditures in '22 to build solutions that will help us solve challenging problems for our customers and address critical global sustainability issues. In addition, as Darius highlighted, we're investing an incremental $100 million in cutting-edge technology like Quantinuum. These strategically important investments are building on the momentum we have with the recent wins, both in sustainable solutions and more broadly across Honeywell, creating value for our shareholders. This outlook could, of course, get better if tax law changes play out differently, and our CapEx this year should be a bit of a peak. So I'm very confident that we'll continue to be a strong cash generator prospectively. Now let's turn to Slide 11 for a preview of the first quarter. We're entering Q1 with a very strong backlog and a number of challenges persisting in this operating environment and some evolving economic and geopolitical uncertainties. We expect organic growth in the first quarter in the range of down 2% to up 1%, driven by the ongoing supply constraints; current COVID dynamics, which have dampened travel somewhat compared to Q4; and evolving geopolitical uncertainties. We'll continue to deploy pricing actions to combat rising costs, and we expect price increases to drive approximately 4% of sales growth in the quarter. This quarter will be our toughest comp for the year as the first quarter of 2021 was near the peak of our COVID-related mask demand. Excluding the 2 percentage point impact of lower masks, we would expect organic growth in the range of flat to up 3%. We expect segment margins in the range of 20.6% to 21% in the first quarter, down 40 basis points to flat year-over-year. Excluding the impact of Quantinuum, we expect segment margins to be down 10 to up 30 basis points as our price/cost actions and cost management mostly offset the volume leverage challenges we're facing in the supply-constrained environment. The net below-the-line impact is expected to be between $30 million to $75 million expense, with a range of repositioning between $120 million and $160 million in the quarter as we continue to provide capacity to fund ongoing restructuring. We expect the effective tax rate to be in the range of 22% and an average share count of approximately 697 million shares. As a result, we expect first quarter EPS between $1.80 and $1.90, down 6% to down 1% year-over-year. And lastly, the first quarter is historically our lowest from a cash perspective. With the supply chain impacts that we have been facing, those will continue to drive higher inventory levels, dampening our cash generation in the short term. Now let's take a moment to walk through our expectations by segment. In Aerospace, we expect flight hours to remain relatively flat to the fourth quarter, though COVID may dampen it some. It will be up significantly year-over-year, leading to another quarter of strong growth in both Air Transport and Business & General Aviation. Air Transport original equipment should return to growth as build rates begin to improve. In Defense & Space, International Defense will continue to grow and stable U.S. defense spending will lead to volumes that are relatively flat to the fourth quarter, though down slightly year-on-year. In Building Technologies, we expect business conditions to remain similar to the fourth quarter, with strong demand but continued supply constraints. Demand for our Healthy Building Solutions should remain strong as the world continues to combat COVID-19 and the Omicron variant. The business should see sequential and year-over-year growth as we execute on our robust backlog in Building Solutions and see continued demand for fire and security products. In PMT, we expect continued year-over-year sales growth in the first quarter. Strong demand for Thermal Solutions will drive growth in Process Solutions, while the projects business begins to move past its pre-COVID decline comps. Increased catalyst shipments and process technologies licensing will support growth in UOP, though they'll be partially offset by lower equipment volumes due to project life-cycle timing. Advanced Materials sales will continue to increase in the quarter due to sustained high demand across the product lines as well as pricing actions implemented to offset commodity inflation. Finally, in SPS, Q1 will be its most difficult quarter. We expect sales to be down year-over-year due to the 9-point impact of mask demand and Intelligrated sales that will be near the second half exit rate as opposed to the very strong start in Q1 of last year. We'll see strong double-digit growth in the first quarter from Productivity Solutions and Services, Advanced Sensing Technologies and Gas Detection as they execute on the robust backlog. Productivity Solutions and Services has been a star in the portfolio, and we expect this business to continue to gain market share. So overall, the road ahead remains challenging, but we're confident in our ability to navigate through this operating environment in the first quarter, and we're extremely optimistic about our prospects for the future. So with that, I'll turn the call back over to Darius.

Thank you, Greg. Let's turn to Slide 12 and talk about our corporate governance at Honeywell. Integrity and ethics, inclusion and diversity, and workplace respect are foundational principles that are core to our strategy at Honeywell. Our focus on these principles is evident in our corporate governance efforts throughout the entire organization from top to bottom. We have a diverse and independent Board of Directors overseeing the business and an executive team that is committed to fostering a culture built on these foundational principles. Through our annual training for all of our employees, we educate on our code of business conduct and promote honest business practices, compliance with all laws and regulations, and respect in the workplace. We recently launched Honeywell Accelerator, a revitalized operating system that provides a centralized source of training programs designed to further develop our employees and enhance the way we manage, govern and operate the business. Accelerator allows us to educate and standardize around our best practices and will empower our employees with the knowledge and tools needed to perform their roles. In January, we announced a new addition to our Board of Directors. Rose Lee was elected to join the Board as an Independent Director. Rose is currently President and Chief Executive Officer of Cornerstone Building Brands, a leading manufacturer of exterior building products in North America. Rose has a unique blend of leadership skills, deep knowledge of operations and technology, and a passion for environmental, social, and governance expertise. Prior to joining Cornerstone Building Brands, Rose served as President of the DuPont Water & Protection business, focusing on improving sustainability through the company's water, shelter, and safety solutions. She's also spearheaded initiatives to advance minorities, women's, and veterans. Rose's perspective will be a valuable addition to our Board as we further advance Honeywell's transformation. Now let's turn to Slide 13 for some closing thoughts before we move into Q&A. In the first year of recovery was not without its challenges. However, we effectively managed through these macroeconomic difficulties and over-delivered on our financial commitments. We didn't stay on the sidelines, but instead, we took action to grow the business, including increasing our capital deployment. Our balance sheet remains strong, and we'll continue to invest for the future of Honeywell. While several COVID-related headwinds will drag into early 2022, the macro setup is trending favorably for most of our end markets, and we're optimistic about our future. Our recent innovations, including new safety and sustainability offerings, will drive long-term growth and allow us to meet some of the world's most pressing needs. One last item before we move to Q&A. I'm pleased to announce that our 2022 Investor Day will be held on March 3 at our corporate headquarters in Charlotte. At this Investor Day, I, along with members of the senior management team, will discuss Honeywell's business strategy, exciting new growth opportunities and an updated long-term growth algorithm. We look forward to sharing more with you about Honeywell's future at that time. With that, Sean, let's move to Q&A.

Thank you, Darius. Darius, Greg, Anne and Torsten are now available to answer your questions. Ari, please open the line for Q&A.

Can you hear me?

Yes. Good morning, Scott.

Yes. Good morning.

Guys, the guidance seems conservative, I guess. And when you back out price, 4% price, you're not expecting a whole lot of unit volume recovery. Is that because of the first half being so weak and you expect just a modest improvement in the second half? I mean, I guess just a little bit of color. I look at Slide 7, and it looks so bullish. Then you look at Slide 8, and you say, 'Oh, it doesn't feel as bullish.' Just trying to get a sense of how you're thinking about the year playing out and how conservative the guide is.

Yes, I have a few comments on that. We need to consider the impact of masks, which adds one percentage point to our growth rate, bringing it to 5% to 8%. The masks create some noise in our numbers, particularly in the first half. Additionally, the first half is expected to be slow, so we will need significant acceleration in the second half. While we are optimistic about improved supply chain flow, it remains somewhat uncertain. Despite the slower first half, we anticipate aggressive growth in the second half. For us, 5% to 8% growth, with a midpoint around 6.5% to 7%, seems like a reasonable starting point for the year, given the supply chain uncertainty. I am hopeful, and we have some solid data points, such as confirming over 90% of our semiconductor needs for the year. However, these confirmations do not always align with our desired timeline, especially for the first half, as they are more certain for the second half. This requires us to consider potential future uncertainties. Our guidance, which some might describe as aggressive or conservative, assumes a significant uptick in the second half, likely in line with some of our peers. What we don't know, including Honeywell and others, is exactly how the second half will unfold. We have planned for a ramp-up that we believe is achievable, and we will make adjustments as the year progresses.

Okay. That's fair. I'll stick to the one question. Good luck in '22.

Our next question comes from Steve Tusa from JPMorgan.

Just on the investment side, it looks to me like R&D is growing by 15%. You have this digital investment you're making. You talked about the CapEx and how, I think, you said that's kind of getting close to a peak. What is the sort of normal run rate of these investments now going forward? It seems like they grew meaningfully ahead of sales this year. Are these investments going to continue to grow ahead of sales? Or will they be more kind of flat with sales or even flat on an absolute basis? What's the outlook for those R&D and digital spending?

Let me break that down, Steve. From a CapEx perspective, we anticipate this year to be higher than usual by about $200 million to $300 million, which is somewhat atypical. It's also important to note that our investors should encourage us to invest in CapEx and R&D, as these areas yield the highest internal rate of return. In the current M&A landscape, achieving double-digit IRR returns is commendable. We have excellent projects in both CapEx and OpEx that will deliver significant returns for investors, particularly in Sustainability and Technology Solutions, which is set to become a multibillion-dollar business by the end of the decade. The recent successes we've experienced are evidence of this trend, and I expect to see continued momentum. Regarding OpEx, we are making investments in Quantinuum, which comes with nearly a $200 million burden from our OpEx commitments in that area. This presents an attractive opportunity for investors, allowing them to acquire a leading quantum computing company at an industrial multiple. However, it remains uncertain whether this will stay within our portfolio long-term. This could also lead to additional challenges. As for R&D investment, the specifics are still to be determined. We will keep investing in innovation, especially as promising projects arise. We are committed to strong investments in sustainability, aerospace, and more, and we will continue to pursue these initiatives.

It's difficult for us to see that while you're investing this money, there's not a noticeable impact on sales in the fourth and first quarters. Can you provide any insights on expected sales growth? We can calculate the returns, but will this lead to an increase of one or two points in sales annually over the next few years? Eventually, we need to see this reflected in the top line to influence the bottom line, and that's what feels a bit contradictory.

Yes, I understand. There isn't any instant gratification. In terms of quantum computing, we are anticipating more than $20 million in revenue this year, possibly even exceeding that. However, we expect it to reach $1 billion by 2026, which represents a compelling growth trajectory. Regarding Sustainability Technology Solutions, we are projecting it to become a $700 million business within three years, with expectations of a couple of hundred million this year, followed by rapid acceleration. In the larger picture of Honeywell, these contributions may not be significantly apparent in the first or second quarters. However, as we look ahead to 2023, 2024, and 2025, we are very confident that these elements will materialize, and we will share more details at the Investor Day. The Sustainability Technology Solutions sector has been thriving. We have secured several wins, some of which we cannot disclose, especially in our green fuels area, which reinforces our confidence to invest further in that business due to the strong demand and interest in our technologies.

Our next question comes from Julian Mitchell from Barclays. Julian.

Maybe just a question around sort of cash generation and cash uses. So I just wondered what your perspective was on whether Honeywell can be a sort of 100% free cash flow conversion business in the medium term. Understood that maybe CapEx normalizes, but you've still got that pension income in the P&L aspect there. And then the second part is on the cash uses. I think investors might say, look, you've got very high IRR investments being made. The share price isn't embedding the high IRR. Your balance sheet is unlevered. So why don't you do a big share buyback right now in advance of those high IRR projects becoming visible?

Thank you, Julian. Over the past four years, we have significantly enhanced our cash generation capabilities, reaching around or even above 100%, with cash margins of 16% to 17%, which we believe is a more accurate metric. This year's investment will likely reduce that figure to the mid-to-high 80s range and cash margins of about 13% to 14%, so we expect mid-teens margins. Looking ahead, we are optimistic. Our capital expenditures typically hover around $900 million, but this year we might see it rise to $1.1 billion or $1.2 billion for specific reasons that should trend back down. We will continue to focus on income growth, which will boost our cash generation. I am confident in the strength of our cash flow. While I can't guarantee it will hit 100%, I believe maintaining mid-teens cash margins is quite achievable. Regarding share buybacks, we are prepared. As we demonstrated in the fourth quarter, we are ready to invest our capital wisely, having used nearly $1 billion, or specifically $880 million. Should the opportunity arise, we are prepared to act. This will always be a consideration in our capital allocation strategy. Darius, feel free to add anything further.

Yes. I think, Julian, as you saw in Q4, we were very active in the market and believe the shares are currently undervalued, which is why we took action in Q4. We delivered on our promises. Regarding cash conversion, I have to admit that I'm not a fan of that metric. It can portray a misleading picture, especially if you engage in costly M&A and have an underfunded pension plan. I prefer to look at cash as a percent of revenue, which I believe is a more accurate measure. I anticipate that we will be in the teens in that regard, sometimes in the mid to upper teens and other times lower. However, we will not hesitate to invest in the business when faced with strong growth opportunities. It's encouraging that Honeywell has such opportunities that can yield attractive returns. I do wish that some of the revenue and returns would materialize sooner; I think we all share that sentiment. But the reality is that these returns are appealing. Whether it's Quantum, Sustainability Technology Solutions, or other areas, we consistently achieve this level of margin performance. We are not a low-margin company; we operate in the low 20s, placing us in the top quartile of our peer group. We maintain our confidence in margin expansion because we are investing in differentiated innovation that allows us to capture value, and I believe we have demonstrated that.

Yes, I agree with that on the premise of the cash flow margin.

Our next question comes from Nigel Coe from Wolfe Research.

Can you hear me okay?

Yes.

Yes.

Just want to go back to cash flow and the $0.5 billion impact from the tax changes, Greg.

Yes.

R&D is definitely a bit heavier than we anticipated. Can you clarify if this includes R&D and other factors? And if Congress resolves this issue, will that impact return or are there other considerations?

Yes, absolutely. We could have followed some of our peers who chose not to address the negative impact of the extenders not happening, but we opted not to do that because…

Yes. Most of our peers.

Yes. I mean, I could tell you that it's going to be $400 million to $500 million more cash flow. And then if they don't do the needful, then we're going to come back to you in April and take our guidance down. So that was not a position we wanted to be in. We're being very transparent with what it is. We really hope that, that legislation gets extended. We feel very strongly that R&D tax credit is important. It's important for us to invest here in the U.S. in R&D, protect jobs, et cetera, and it's underpinning of a lot of our technology that we then export throughout the world. So we're very hopeful that, that changes. But in the meantime, as it stands right now, it doesn't. And come March, we may be having to make a payment. Therefore, we put it in our guidance as such.

The short story is Nigel, if it does get passed, expect an increase of roughly $400 million to our cash outlook for the year.

Our next question comes from Jeff Sprague from Vertical Research.

I want to revisit the growth investments. From my perspective, we could estimate that the growth, R&D, and CapEx total between $200 million and $300 million for CapEx, and a few hundred million for R&D. Darius, you've discussed these initiatives for some time, including the ones you outlined here. Could you help us understand what constitutes true growth CapEx and growth-oriented R&D? Have you identified ways to reallocate those traditional spending areas? You've mentioned efforts to reduce the asset intensity of the business and make other adjustments, so it appears there is some flexibility within the CapEx budget. My main question is really aimed at uncovering the growth implied in the IRR number you provided, which seems to depend on the actual growth spending.

Yes. Well, I think sort of the increment for this year is pretty much all sort of growth-oriented spending. A couple of other elements are embedded. Some of the classical sort of CapEx spending is decreasing. What it's getting replaced by is some of the spending that we're doing in things like automation. For example, our next phase of ISC transformation isn't so much a reduction in footprint and fixed costs and so on, but it's actually automation. So there's some CapEx that's embedded in there that doesn't necessarily help growth, but it helps margin expansion, efficiency and so on. So there are some puts and takes, but the incremental spend has been on growth programs. Let me just give you a couple of specific examples where we've actually spent in development. We probably don't talk about it often enough, but our Forge business, which we've been invested in pretty heavily, their recurring, their SaaS growth, 39% last year, their recurring revenue base, double-digit last year. Overall software growth, double-digit last year. Our Solstice business, which, as you may recall in the '15, '16, '17 timeframe, we've invested a lot of capital into it. Now billion-dollar-plus kind of a business, and now we're investing even more because it's accretive to our margins. It's growing very, very quickly, and we're finding new applications. I hope the investors trust us that we make these investments; they come to fruition, generate returns. They're not instantaneous. We made Solstice investments 4, 5, 6 years ago, and now they're coming to fruition and they're flowering. Made the Forge investments 3, 4 years ago; that’s grown. In 2, 3, 4 years, I'm very confident we're going to be talking to you about the kind of top line we're getting from Sustainability Technology Solutions or Quantum, whether it's part of Honeywell or not, but these are attractive things.

Just a quick follow-up, if I could. So much discussion on growth here today. Could you size maybe the growth headwind that you experienced in Q4 and/or the year on supply chain or other type issues?

We discussed our guidance previously, estimating $300 million to $500 million for Q4 after roughly $300 million in Q3. It appears we leaned more towards the upper range of $500 million. This is reflected in our past due backlog, which remains elevated in three out of four of our businesses. Over the year, we've seen about $1 billion more than we initially anticipated. While the numbers don't match perfectly, they offer a good indication of what was left unresolved in 2021, which we are confident will carry over. As the semiconductor supply chain improves, we expect that to alleviate some past due issues, particularly in PMT, but primarily in the HBT and SPS sectors. We have discussed supply chain challenges significantly, and now we're noticing similar conversations among our aerospace and defense peers. As the supply chain improves, we anticipate it will provide substantial support for us as we progress through the year.

Our next question comes from Sheila Kahyaoglu from Jefferies.

So I want to ask about maybe Aero margins and SPS margins because I think that's the 2 deltas versus our model and your long-term targets. Especially on Aero margins, when we look at your margins, you did 27.7% in 2021, which is really good, and 28.2% if we exclude the Quantinuum loss. So how do we think about the drivers of that despite headwinds that you have in the business, but you're talking about margin expansion there for Aero, what's the reset higher? And then same for SPS, how do we think about a normalized margin rate there?

Yes. Let me begin and then I'll hand it over to Greg. I believe there are a few points to mention. We anticipate significantly more operational excellence growth in 2022 compared to 2021. While the mix was favorable in 2021, we expect to see continued growth in the aftermarket sector. We are also making investments in research and development. Given the volume leverage we expect, the mix may not be as favorable as in 2021, but it will still be good in 2022. We foresee continued margin expansion in Aerospace despite further investments in R&D. As for the SPS segment, our primary challenge was in the Intelligrated business, which experienced over 50% growth last year. I have previously mentioned that it was probably the worst year to achieve such high growth. In 2022, our focus in Intelligrated will shift from growth to productivity and margin expansion. We need to better position this business for future growth, which we expect to see in 2023 and 2024. This segment notably impacted our SPS margins, particularly in the latter half of last year.

Yes, you can choose the beginning and end. We anticipate the most margin expansion in SPS for those reasons. I believe Aero will be on the lower end due to the investments we are making in R&D and some mix pressures. We will receive some benefit from Quantinuum moving out, but it will be on the lower end for Aero. That's not a bad thing. We significantly improved Aero margins in 2021. We are not slowing down from a low pace; it was a major factor in our margin expansion that year. Therefore, I believe this is the right approach. We want to ensure we are always investing in that business because it has a very promising long-term future.

Our next question comes from Andrew Obin from Bank of America.

So the question is just a follow-up on guidance. At the lower end, right, you're guiding to 4% top line growth with 4% pricing, which sort of implies flat volumes. Could you just talk about the scenario? What does the world look like in which this comes true? And what does it imply for the second quarter?

Yes, I think it's important to filter out the noise from masks. Even at the lower end of our forecast, we are still growing the business. Masks will likely continue to impact our numbers, contributing around 2 points in Q1 and some in Q2. The situation with the supply chain remains the biggest uncertainty. While we are hopeful that the supply chain is improving and we may have reached a low point, we cannot fully incorporate this into our projections until we see more definitive evidence. Therefore, the state of the supply chain is the primary unknown factor affecting our estimates.

Got you. So not a specific segment, supply chain.

No, the ones that are getting impacted the most, I think in PMT for the most part, the impact there has been very mild. I would say HBT has been impacted relatively heavily, particularly in Q4. I would say, looking forward, that's probably the segment where we have the biggest impact. Aero also, and SPS actually is getting better, so that's sort of how I would weigh the 4 different segments.

Our next question comes from Deane Dray from RBC Capital Markets.

Just since it's been in the headlines over the past several weeks about the 5G rollout and issues with the risk of interference at airports, I'd be interested in your comments. Has this impacted at all orders in aerospace? Has it required any retesting? Any delays? Any commentary there would be helpful.

Yes, no. The short answer, Deane, it has not impacted orders. We're obviously working with both the OEs and the FAA to find a solution. We're actively involved in those discussions. But in terms of orders and so on, no. If anything, if there's a hardware and/or a software solution here, it probably will improve our outlook for orders, not actually detract from it; it is something we're very active in those discussions.

Is there a risk of interference? There's lots of debate there.

Yes. I think I'm going to leave that answer to the experts. I'm not an expert on this topic. So I think I'm going to defer that one.

Our next question comes from John Walsh from Credit Suisse.

Wanted to just dig in a little bit to Slide 22, where you talk about the labor cost inefficiencies, the $30 million to $50 million. Would just love to know how you're actually calculating that. Is that absenteeism? Is it the impact of inefficiencies from doing changeovers? It would seem like we've heard that from many manufacturers, but I guess you're the first to size it and actually seemed a little bit low. So maybe there's some other things that are not being captured in that $30 million to $50 million you call out.

Yes, this is specific to Intelligrated and relates to projects we started in 2021 that will extend into 2022. Some of these costs are tied to demobilization and remobilization, along with the inefficiencies that arise. In installation projects, materials and personnel arrive on site to complete the work within a specific timeframe and sequence. When there are disruptions due to material availability, it complicates labor scheduling and timing. These costs can be linked to specific projects. We have adjusted our operational approach with some customers to increase lead times and prevent similar issues from happening again in 2022. This is primarily about finishing some larger jobs from 2021.

Yes. Greg said it right; when supplies don't arrive on time, it causes inefficiency in the installation. People are waiting on supplies, and that's kind of what we change going forward for '22. We will really be staging the parts and components needed for the warehouse before we apply the labor. So the way we're going to execute these jobs, because generally, in a normal-flowing supply chain environment, you do that concurrently. But with the unpredictability in the supply chain, it's really not possible or prudent to do it that way. So we're going to be doing much more staging before we apply labor to do the install, which will dramatically improve our operating efficiency.

We'll take our last question from Andrew Kaplowitz from Citigroup. Andrew? Okay. We'll come back to Andrew. We'll take one more question from Markus Mittermaier from UBS.

One on PMT, if I could. Obviously, Europe piece is still strong as per your comments. You had a comment in the press release this morning that there was delayed project recovery and softness in smart energy in the fourth quarter. How should I think about the '22 guide here mid-single digits to high single digits in the context of the automation business? What are the customer conversations here on budgets? And is there upside there if some of these project delays, maybe around the status you expect, how should we think about that?

Yes. No, we're very bullish on PMT this year. Just to give you a specific idea, our project business bookings were up double digits in Q4. We actually see a substantial acceleration in our automation business, and that's reflected in the booking rates. PMT overall was up double digits in Q4 and the year. UOP business bookings were up over 20% in Q4. So really, really nice positioning for PMT. We're very bullish on PMT for '22 and '23. I mean the investment cycle is certainly returning, and we're seeing that in both our booking rates and the performance we saw even in Q4, and we think that that's going to continue. So I think PMT is as well positioned as any business we see for '22.

Thank you very much. That concludes today's question-and-answer session. At this time, I would like to turn the conference back to Darius Adamczyk for any additional closing remarks.

I want to thank our shareholders for your ongoing support. We delivered strong fourth quarter results and continued to navigate effectively through multiple uncertainties with the typical level of operational rigor you've come to expect from Honeywell. Our future is bright, and we look forward to discussing this further at our upcoming Investor Day. Thank you all for listening, and please stay safe and healthy.

Thank you. This does conclude today's conference call. You may disconnect at this time. Have a wonderful day.